Official information shows that approximately 70 enterprises deal with the processing of grapes and manufacturing of wine, champagne, and cognac in Ukraine. Two large groups can be singled out from them: traditional companies with their own vineyards and new companies dealing exclusively with the bottling of wine. Skillful promotion of trademarks is required for the latter companies. A company from practically any sector of the food industry can enter the wine and cognac market if it can master this art.
Meanwhile, experts believe that the future belongs to the former, as quality control is becoming important. Growers have not shown a strict adherence to this, though. The majority of producers think that a 70:30 correlation of own to purchased grape is optimal in this respect.
Current wine production is much lower than the pre-1985 level. That year saw the beginning of a massive anti-alcoholic campaign. However, increases in wine production over the last few years show steadily increasing production.
Regular experiments with excise tax have resulted in situation that is unique in the world – wine is double taxed. Tax is levied on alcohol, wine materials, and finished products. The latest changes in excise legislation made wine makers redirect toward the production of dry wine and to reject manufacturing of fortified wine, though the last type of wine was always a well respected Ukrainian product.
The production of champagne wine is a specific segment of wine making. Producers have tried to change the tendency, but champagne, in the perception of consumers remains a product for New Year celebrations. Production ramps up in October and abruptly drops in January with a practical halt by April. At present 11 main plants control the market of champagne wines. 90% of output is produced by the accelerated (acratophore) method and only 3 companies apply classical French technology. It demands more effort, time, and resources, though consumption demand for classical champagne is on the rise in Ukraine.
The Ukrainian wine market is still forming in the opinion of experts. After an almost complete lack of foreign wines in Ukraine before independence, the import of wine began in the early 1990s with a simultaneous drop in Ukrainian wine production. Wine import became more or less regular over the 1990s. The number of fakes has dropped and volumes of famous brands increased. The product range of imported wines has also stabilized to some extent in accordance with the shaping of demand for them in Ukraine.
The legal import of wine has risen quickly over the last two years. Western Europeans, especially from France, look to increase their sales on the Ukrainian market with dynamically developed networks in restaurants and western-style retail food stores, while the restoration of wine production due to influx of investments in the CIS states, most of all in Moldova and Georgia, has led to rising shipments from neighboring states.
Wine is made of grape wine stock. Mass culls of vineyards in Crimea and in the south of Ukraine took place in the middle of the 1980s in the course of anti-alcoholic campaign. Vineyards were practically not replanted in the 1990s because of a lack of funds and the destruction of business ties. At present most vineyards are old and are of low productivity age.
Specialists estimate that planting 1 ha of vineyards costs USD 8-15 ths. The first harvest from a planted plot would be obtained in four-five years, so a long-term outlook is required. Despite all this, Ukraine imports grape seedlings now, and Ukrainian companies are beginning to actively renew vineyards. Red grapes are preferred, because traditionally high demand exists in Ukraine and other CIS states for red wines.
The total area of vineyards in Ukraine dropped by 30.6% or 43.9 ths. ha down to 99.4 ths. ha from 1990 to 2000. This tendency has continued. Vineyards in 2006 covered 75.8 ths. ha, that is 6% or 4.8 ths. ha less than in 2005. Grape production correspondingly decreased from 835.7 ths. tons in 1990 in Soviet times to 513.8 ths. tons in 2000. Production in 2005 constituted merely 374 ths. tons, or 25.9% less than in 2003 and 2.2 times less than in Soviet times. At the same time, production in 2006 dropped by 32% or 142 ths. tons down to 301 ths. tons. It is quite difficult to estimate volumes of grape used by the Ukrainian winemaking industry due to contradicting statistical information on wine production and input smuggling. Judging from more or less reliable statistical data, we can conclude that approximately 65% of grapes produced are used for processing wine.
Wine production volumes have grown over the last several years since the recession of the first half of the 1990s. The most significant growth, as reported by official statistics, was in the period 1999-2002 (official information): 1999 – 8.558 mn dal, 2000 – 9.48 mn dal, 2001 – 14.254 mn dal, and 2002 – 20.808 mn dal. At the same time, DZI experts estimate that some companies that declared the production of wine, actually manufactured stronger liquors during those years. Market analysts believe that official information on wine production is 40% too high, and in fact vodka is produced in order to evade alcohol excise tax. Meanwhile, production growth was evident even without considering information from the companies: 5.983 mn dal in 1998, 8.547 mn dal in 1999, 9.445 mn dal in 2000, 10.842 mn dal in 2001, and 13.008 mn dal in 2002. According to preliminary information for 2007, wine production volume amounted to 19.166 mn dal, which is 13% more than in 2006.
It should be noted that these production figures over the last years are several times less than in the middle of the 1970s. The consequences of the mass vineyard culls in the middle 1980s, the economic recession of the early 1990s, and the current situation with the production of wine materials in Ukrainian companies that actually make wine are among the factors in the long-term drop.
Judging from official data on volume of production and calculation data on import and export, average volume of grape wines consumption in Ukraine over 2003-2004 amounted to 14.413 mn dal. It is possible to assert that exaggerated official data do not distort production volumes, because statistics does not consider smuggling volumes and the production of fakes of foreign wines. Expert analysis and official statistics show a trend of increasing wine consumption over the last several years. Independent analysts on the market estimated that gross consumption of grape wine in 2007 amounted to 23 mn dal taking into account official information on production, export, and import. The share of the local wines in this volume constituted 76% (in average 93% over 2003-2004).
Experts think that at present the Ukrainian market is not clearly segmented. In general, the wine market should be divided into three large segments. Ordinary wine represents the lowest segment, vintage (check) wines are in the middle segment, and aged (select) wines comprise the elite segment together with rare wines. The lowest segment, as the largest by actual sales volumes, is divided into several segments, in which producers position their commodities. At present, ordinary wine could cost more than vintage (check) wines of the same grade through better trademark recognition.
Wines produced in about 45 countries have been imported to Ukraine since independence. Wine from approximately 25-30 countries was imported over the last several years. The beginning of 1990s was characterized with a shortening of foodstuff production in Ukraine (wine included) and their replacement with imports. Both high-quality products and substitutes (mocks), mainly from Eastern European states were imported. In the course of time local production of wine was restored. Official deliveries of high-quality wines from Western producers and from CIS states increased and the situation in retail trade improved. Individuals started to make informed purchasing decisions, too. This has resulted in a reduction in demand for products of dubious origin and consequently a curtailment of their import. Deliveries from Eastern European states, especially Bulgaria and Hungary, are examples of the above.
There have been two main trends in wine import to Ukraine: growth of general imports and a drop in deliveries from some European states in the last several years along with the expansion of imports from the CIS states, first of all from Georgia and Moldova.
France and Italy have been the main European suppliers over the last years. Deliveries from these two states have been relatively stable, evidencing a persistent demand for their products. Import of wine from the CIS states dropped over 1998-2000. It was promptly restored later on and has trended upward. Import of wine from these states over the last years has considerably exceeded the level of 1998 and keeps increasing. Moldova and Georgia are leaders in wine import to Ukraine from CIS states.
DZI experts estimate that imports to Ukraine in 2007 constituted 5.59 mn dal, or 24% more than in 2006.
Grape wine export from Ukraine is characterized by unstable delivery volumes, though a rise in 2003-2004 might signal a new level. Export volumes in 2007 curtailed. From one point of view, the increase of production volumes in Ukraine, manufacturing of competitive output with keen prices, as well as growth of individual wealth in main importing states of this output promote the expansion of exports. On other hand, the CIS states, which are main sales markets for Ukrainian-made output (80-100% of Ukrainian wine export is destined to FSU states), face tough competition between wine producers from different importing states nowadays. Russia and Belarus are primary and most regular Ukrainian export destinations.
Well-tuned trade relations with these states, competitive prices for Ukrainian output, and high demand of population for Ukrainian products are the main factors for this. At the same time, these states are the largest importers of Moldova wines, which affects the Ukrainian wine share on their markets. Germany and Poland are more or less regular consumers of Ukrainian wine among European states. Also it is supplied to Israel.
DZI experts think that export of wines from Ukraine amounted to 1,771 mn dal in 2007, which is 35.7% less than in 2006.
The wine market in Ukraine keeps developing at present. Despite negative trends still present in the industry, Ukraine has manufacturing capabilities inherited from the Soviet Union and climatic conditions for growing high quality grapes as against neighboring Russia. Judging from available information, it is possible to conclude that this market is quite promising for Ukrainian producers, because consumption volumes are steadily growing. As more and more Ukrainians become acquainted with a European life style, the change in generations should also promote a drop in vodka consumption and expansion in wine use over the next few years.
The development of Ukraine’s economic situation shows that mass demand would grow foremost for high-quality inexpensive wines with an element of prestige. By now ordinary wines of famous Ukrainian and Moldavian trademarks fall into this category.
Growing wine consumption in Ukraine brings hopes to Ukrainian winemakers in their fight for alcohol output consumers. Much lower investment requirements for vodka production in comparison with high-quality wine definitely represent an advantage for vodka producers, and this extends to advertising as well. Low awareness by domestic consumers regarding wine classification, high-quality wine parameters, differences in wine sorts, as well as relatively low individual income are other negative characteristics in fight of Ukrainian wine makers for local customers.
Domestic producers try to overcome the first problems with extensive advertising to increase recognition of trademarks and create a regular client base. Regarding the second drawback, Ukrainian wine makers hope that the already visible improvement in the economic situation and increase of individual welfare will encourage a reduction in strong liquor consumption, as this has already been seen in other countries.
The life cycle of the Ukrainian wine industry is by all attributes at a growth stage. Output from the industry is experiencing increased demand. Competition between wine producers for a larger share of the growing sales market is increasing.
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